Related to my previous post on foreign debt payments, here's an article from the NY Times (via 3quarksdaily), on how the poorer countries subsidize their richer counterparts. It reports that "According to the United Nations, in 2006 the net transfer of capital from poorer countries to rich ones was $784 billion, up from $229 billion in 2002." The article goes on to explain that reverse foreign aid happens through the following:
1. Investment in US Treasury Bills
2. Honoring international intellectual property agreements.
3. Tax holidays for foreign investors
4. Brain drain (e.g. OFW doctors and nurses)
5. Subsidies to First World agriculture
6. Environmental damage due to global warming.
...and how above phenomenon is a burden to the third world countries like ours.
#1 above seems more relevant to China and the US Budget Deficit, and less relevant to us (unless this eventually leads to a dollar crisis). On #2, i mentioned over at mlq3 that:
"While the focus of the law has been on the pirates, the greater danger lies with the corporations (and their allies in government), who, as agents of Empire, seek to close off the intellectual frontier through strict interpretation and aggressive enforcement of intellectual property laws, in the name of profits. Among scientific and medical communities where open collaboration and information sharing is the key to new discoveries and innovation, restrictive intellectual property laws and practices are emerging as a real threat." (This led into further discussion in that comments section with DJB on this matter.)
On #3, i don't have the article on hand now so i may be mistaken, but i seem to remember that Mar Roxas saying something about giving too much tax holidays to foreign investors. #4 is a known, much discussed issue related to the OFW phenomenon. #5 is a key point of contention when it comes to WTO-related negotiations and #6 is an unfortunate reality that has a lot to do with geography.
A comment in that same post in 3quarksdaily also links to Brad Setser's web blog, who has an article on a more benign (to the third world), but related phenomena they call reverse globalization which is a situation where "Emerging markets will be buying companies – not just bonds – in the developed world.". The participants in this are the rapidly developing and relatively capital-rich developing countries like China and the Gulf States.
Showing posts with label Foreign Debt. Show all posts
Showing posts with label Foreign Debt. Show all posts
Monday, April 02, 2007
Abe Margallo on Foreign Debt & Development, Sparks on State Reform
Here's a proposal by Abe Margallo, on a strategy for handling foreign debt and implementing industrial development.
"Our economic elites (who own half of the debt burden), imbued with a deep sense of country, consider the possibility of entering into some form of “forbearance” with the national government with a view to a short-term moratorium on debt service payment, say, an 8-year temporary cessation. (This indulgence by the elites is in a way a matching counterpart to the acknowledged sacrifices of the OFWs, serving to keep the ship of the nation afloat.)
During the moratorium, the government in partnership with the same forbearing private sector, or vice versa, ventures into vigorous investments, targeting specific industries such as: the manufacture of the imported component of the electronic exports; bio-fuel as alternative source of energy; or exploration in the extractive sector. (I’d prefer to treat the forbearance as some sort of passive investment on the part of the economic elites; after all, the first beneficiary of dependable institutions and infrastructures, productive workforce and booming economy would be none other than the elites themselves.)
What’s withheld as otherwise rent payment, which, doubtless, is a considerable sum, may now be available for physical and social (certainly together with educational) infrastructure outlays as well as for state support for R&D. On the other hand, appropriate incentives like “tax holidays” for entrepreneurs directly involved in these targeted sectors are worked out.
Aside from moratorium on debt service and on capital strike, similar challenge is posed to the labor sector to bite the bullet by committing to a moratorium on labor strikes and other concerted actions during the experimental phase.
Foreign creditors and investors, not being importuned to make a change of position, are expected to regard the arrangement as a real honest-to-goodness resolve for internally driven strategic economic plan. On the other hand, in virtue of its ownership by local leaderships, the initiative is perceivable as one designed with a visceral sense of stewardship (to have lasting positive consequences for the next generation of Filipinos); hence, stabilizing and producing the effect of strengthening the country’s creditworthiness and standing in the world economy."
In a later comment, he added his thoughts on development models, particularly the ones followed by South Korea, Taiwan and China:
"I have also considered as viable alternative the South Korean route. South Korea, a highly homogeneous society, took the innovative route of (officially) embracing crony-capitalism while subjecting it to strict discipline by imposing performance standards, down to the activities in the shop floor, upon business recipients of state largesse. The chaebols then assumed industrial leadership by risking into productive enterprises instead of simply preserving their rent-seeking activities. The state subsidy (from borrowed foreign funds) for diversification into new industries proceeded in tandem with the decision to invest heavily in education. Official cronyism and education, while still conforming to market mechanism, lay at the heart of the late-industrial expansion of South Korea. With fewer multi-national corporations in Korea than in any late-industrializing countries, its economy took off on the basis of nationally owned firms.
I’ve likewise looked at Taiwan as another best practice model. Through broad distribution of land ownership and capital, and high returns to labor (this may be address what cvj calls as “a program of promoting equality”) the individual Chinese was greatly motivated to produce much of the rapid growth of Taiwan’s economy. Taiwan’s small-scale capitalism (“letting a thousand flowers boom”?) as a base for industrial development can indeed serve as just another paradigm for accumulation.
There certainly are other economic models that could be investigated for the best practices we can learn from or from which we could “indigenize” our own. (The China model, playing the globalization game by the Hamiltonian or Keynesian rule-book, stares us in face today.) But the ones that appear to stand out as common denominators for success are:
1) the reciprocal relations between the state and the private sector (businesses, as well as civil societies I wish to add),
2) extensive investment in education and
3) the grandiose ambitions of their pioneering leaders." [emphasis mine]
The above models obviously require active participation by the State to which Sparks, in this comment poses a valid challenge:
"If we assume that the State must play a central role in development, as it has in countless other examples, then we have two tasks:
1. Reform the state
2. Selectively eschew the neoliberal orthodoxy to which we have blindly subscribed through our WTO and IMF commitments.
The question is how do we first reform the state, then enable the state, when neoliberal policies have weakened the state in favour of the private sector? Can we reverse a process that has gone on for 20 years?"
I have taken a stab at a response, but i realize that this is a complex issue and much more is required before we can resolve these interconnected questions.
"Our economic elites (who own half of the debt burden), imbued with a deep sense of country, consider the possibility of entering into some form of “forbearance” with the national government with a view to a short-term moratorium on debt service payment, say, an 8-year temporary cessation. (This indulgence by the elites is in a way a matching counterpart to the acknowledged sacrifices of the OFWs, serving to keep the ship of the nation afloat.)
During the moratorium, the government in partnership with the same forbearing private sector, or vice versa, ventures into vigorous investments, targeting specific industries such as: the manufacture of the imported component of the electronic exports; bio-fuel as alternative source of energy; or exploration in the extractive sector. (I’d prefer to treat the forbearance as some sort of passive investment on the part of the economic elites; after all, the first beneficiary of dependable institutions and infrastructures, productive workforce and booming economy would be none other than the elites themselves.)
What’s withheld as otherwise rent payment, which, doubtless, is a considerable sum, may now be available for physical and social (certainly together with educational) infrastructure outlays as well as for state support for R&D. On the other hand, appropriate incentives like “tax holidays” for entrepreneurs directly involved in these targeted sectors are worked out.
Aside from moratorium on debt service and on capital strike, similar challenge is posed to the labor sector to bite the bullet by committing to a moratorium on labor strikes and other concerted actions during the experimental phase.
Foreign creditors and investors, not being importuned to make a change of position, are expected to regard the arrangement as a real honest-to-goodness resolve for internally driven strategic economic plan. On the other hand, in virtue of its ownership by local leaderships, the initiative is perceivable as one designed with a visceral sense of stewardship (to have lasting positive consequences for the next generation of Filipinos); hence, stabilizing and producing the effect of strengthening the country’s creditworthiness and standing in the world economy."
In a later comment, he added his thoughts on development models, particularly the ones followed by South Korea, Taiwan and China:
"I have also considered as viable alternative the South Korean route. South Korea, a highly homogeneous society, took the innovative route of (officially) embracing crony-capitalism while subjecting it to strict discipline by imposing performance standards, down to the activities in the shop floor, upon business recipients of state largesse. The chaebols then assumed industrial leadership by risking into productive enterprises instead of simply preserving their rent-seeking activities. The state subsidy (from borrowed foreign funds) for diversification into new industries proceeded in tandem with the decision to invest heavily in education. Official cronyism and education, while still conforming to market mechanism, lay at the heart of the late-industrial expansion of South Korea. With fewer multi-national corporations in Korea than in any late-industrializing countries, its economy took off on the basis of nationally owned firms.
I’ve likewise looked at Taiwan as another best practice model. Through broad distribution of land ownership and capital, and high returns to labor (this may be address what cvj calls as “a program of promoting equality”) the individual Chinese was greatly motivated to produce much of the rapid growth of Taiwan’s economy. Taiwan’s small-scale capitalism (“letting a thousand flowers boom”?) as a base for industrial development can indeed serve as just another paradigm for accumulation.
There certainly are other economic models that could be investigated for the best practices we can learn from or from which we could “indigenize” our own. (The China model, playing the globalization game by the Hamiltonian or Keynesian rule-book, stares us in face today.) But the ones that appear to stand out as common denominators for success are:
1) the reciprocal relations between the state and the private sector (businesses, as well as civil societies I wish to add),
2) extensive investment in education and
3) the grandiose ambitions of their pioneering leaders." [emphasis mine]
The above models obviously require active participation by the State to which Sparks, in this comment poses a valid challenge:
"If we assume that the State must play a central role in development, as it has in countless other examples, then we have two tasks:
1. Reform the state
2. Selectively eschew the neoliberal orthodoxy to which we have blindly subscribed through our WTO and IMF commitments.
The question is how do we first reform the state, then enable the state, when neoliberal policies have weakened the state in favour of the private sector? Can we reverse a process that has gone on for 20 years?"
I have taken a stab at a response, but i realize that this is a complex issue and much more is required before we can resolve these interconnected questions.
Tuesday, March 20, 2007
Estimated Foreign Debt Payments: 1987 to 2005
To get a rough estimate of how much foreign debt has been paid from 1987 to 2005, we can add to the foreign debt in 1986 the borrowings from 1987 to 2005 and then subtract the value of debt as of 2005.
At the time Marcos left in 1986, Foreign debt was at USD 28 Billion*. The equivalent of this amount in 2005 would be USD 78 Billion**, . The total foreign borrowings from 1987 to 2005 is USD 49 Billion***. Foreign Debt at 2005 (end of period) is USD 54 Billion****.
Among other things, the above shows that for the past two decades, for every dollar we borrowed, we have paid out two dollars (49 billion vs. 102 billion). (Update 03-21-2007: On second thought, including interest payments to the year 2005 equivalent values may be a form of double counting, in which case, the comparison should be between 49 billion and 73 billion, which means 1.5 dollars paid out for every dollar borrowed.)
Update 08-13-2008: Related updates from the PCIJ.
Notes:
*Source: IBON Facts & Figures 2005 Volume XXVIII
**as computed in measuringworth.com
***sum of borrowings from 1987 to 2005 as computed from here
****Source: BSP Website
*****estimated at 40% of annual principal payments as derived from BSP website
At the time Marcos left in 1986, Foreign debt was at USD 28 Billion*. The equivalent of this amount in 2005 would be USD 78 Billion**, . The total foreign borrowings from 1987 to 2005 is USD 49 Billion***. Foreign Debt at 2005 (end of period) is USD 54 Billion****.
| Foreign debt in 1986 (equivalent dollar value in 2005) | 78 Billion |
| Add: Foreign Borrowings 1987 to 2005 | 49 Billion |
| Less: Foreign debt in 2005 | 54 Billion |
| ------------- | |
| Estimated Principal Payments 1987 to 2005 | 73 Billion |
| Add: Estimated Interest Payments 1987 to 2005 | 29 Billion***** |
| ------------- | |
| Estimated Principal & Interest Payments 1987 to 2005 | 102 Billion |
Among other things, the above shows that for the past two decades, for every dollar we borrowed, we have paid out two dollars (49 billion vs. 102 billion). (Update 03-21-2007: On second thought, including interest payments to the year 2005 equivalent values may be a form of double counting, in which case, the comparison should be between 49 billion and 73 billion, which means 1.5 dollars paid out for every dollar borrowed.)
Update 08-13-2008: Related updates from the PCIJ.
Notes:
*Source: IBON Facts & Figures 2005 Volume XXVIII
**as computed in measuringworth.com
***sum of borrowings from 1987 to 2005 as computed from here
****Source: BSP Website
*****estimated at 40% of annual principal payments as derived from BSP website
Sunday, March 18, 2007
Foreign Borrowings 1987 to 2005
This entry was originally a response to this comment by moks on the comparability of nominal amounts of borrowings over 20 years.
From this PCIJ entry on domestic and foreign borrowings across different administrations. I converted the peso values to its equivalent in US Dollars and multiplied by a factor* to arrive at the equivalent US Dollar value (using 'relative share of GDP') in 2005.
*in measuringworth.com
Graphically represented, it can be seen that the Arroyo Government, compared to previous administrations, has been the most aggressive in terms of foreign borrowings followed closely by the Erap Admin. The average foreign borrowings per year per administration are as follows:
Cory Aquino - 2.0 Billion US Dollars per year
Fidel Ramos - 1.6 Billion US Dollars per year
Erap Estrada - 3.3 Billion US Dollars per year
Gloria Arroyo - 3.8 Billion US Dollars per year (so far)
Update 03-19-2007: Relevant related commentary on this subject from caffeinesparks.
Update 08-13-2008: Related updates from the PCIJ.
From this PCIJ entry on domestic and foreign borrowings across different administrations. I converted the peso values to its equivalent in US Dollars and multiplied by a factor* to arrive at the equivalent US Dollar value (using 'relative share of GDP') in 2005.
| Year | Billions(PHP) | PHP to USD Conversion | Multiplier* | Billions(USD) |
| 1987 | 15.42 | 20.57 | 2.6281 | 1.97 |
| 1988 | 17.29 | 21.1 | 2.4405 | 2.00 |
| 1989 | 19.95 | 21.74 | 2.2711 | 2.08 |
| 1990 | 24.41 | 24.31 | 2.1464 | 2.15 |
| 1991 | 23.09 | 27.48 | 2.0774 | 1.75 |
| 1992 | 34.14 | 25.51 | 1.9654 | 2.63 |
| 1993 | 38.22 | 27.24 | 1.871 | 2.63 |
| 1994 | 12.29 | 26.33 | 1.7612 | 0.82 |
| 1995 | 16.83 | 25.7686 | 1.6837 | 1.10 |
| 1996 | 21.96 | 26.25 | 1.5934 | 1.33 |
| 1997 | 23.00 | 29.42 | 1.4999 | 1.17 |
| 1998 | 48.30 | 40.84 | 1.424 | 1.68 |
| 1999 | 120.35 | 39.1391 | 1.3439 | 4.13 |
| 2000 | 145.43 | 44.24 | 1.2688 | 4.17 |
| 2001 | 68.48 | 50.993 | 1.2298 | 1.65 |
| 2002 | 200.27 | 51.604 | 1.1897 | 4.62 |
| 2003 | 240.12 | 54.203 | 1.1364 | 5.03 |
| 2004 | 199.53 | 56.04 | 1.0635 | 3.79 |
| 2005 | 217.91 | 55.086 | 1 | 3.96 |
*in measuringworth.com
Graphically represented, it can be seen that the Arroyo Government, compared to previous administrations, has been the most aggressive in terms of foreign borrowings followed closely by the Erap Admin. The average foreign borrowings per year per administration are as follows:
Cory Aquino - 2.0 Billion US Dollars per year
Fidel Ramos - 1.6 Billion US Dollars per year
Erap Estrada - 3.3 Billion US Dollars per year
Gloria Arroyo - 3.8 Billion US Dollars per year (so far)
Update 03-19-2007: Relevant related commentary on this subject from caffeinesparks.
Update 08-13-2008: Related updates from the PCIJ.
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